Calculated Risk
Paulson Plan: Will it Work?
The primary goal of the Paulson Plan is to get the banks to lend again – or “unclog the system” as Secretary Paulson put it. Secondary goals are to “protect the taxpayer” and hopefully minimize moral hazard.
Will the plan achieve the primary goal? I think the answer is yes. By removing these troubled assets from the balance sheets of the financial institutions, the banks will able to lend again without lingering doubts about their solvency and viability. At first glance, the size of the plan seems sufficient.
It is almost guaranteed that there will be unintended and unanticipated consequences, but the plan will probably achieve the primary goal. And making sure the banks continue to lend will minimize the impact of the credit crisis on the general economy.
Unfortunately the Plan fails to address the secondary goals….
Yves at Naked Capitalism:
Why You Should Hate the Treasury Bailout Propsal
the shockingly short, sweeping text of the proposed legislation has lead to reactions of consternation among the knowledgeable, but whether this translates into enough popular ire fast enough to restrain this freight train remains to be seen.
First, let’s focus on the aspect that should get the proposal dinged (or renegotiated) regardless of any possible merit, namely, that it gives the Treasury imperial power with respect to a simply huge amount of funds. $700 billion is comparable to the hard cost of the Iraq war, bigger than the annual Pentagon budget. And mind you, $700 billion is not the maximum that the Treasury may spend, it’s the ceiling on the outstandings at any one time. It’s a balance sheet number, not an expenditure limit.
But here is the truly offensive section of an overreaching piece of legislation: Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency.
Dr./Prof. Paul Krugman
Thinking the Bailout Through
…the plan does nothing to address the lack of capital unless the Treasury overpays for assets. And if that’s the real plan, Congress has every right to balk.
So what should be done? Well, let’s think about how, until Paulson hit the panic button, the private sector was supposed to work this out: financial firms were supposed to recapitalize, bringing in outside investors to bulk up their capital base. That is, the private sector was supposed to cut off the problem at stage 2.It now appears that isn’t happening, and public intervention is needed. But in that case, shouldn’t the public intervention also be at stage 2 — that is, shouldn’t it take the form of public injections of capital, in return for a stake in the upside?
Let’s not be railroaded into accepting an enormously expensive plan that doesn’t seem to address the real problem..
Housing Wire
U.S. Taxpayers to Bail Out Foreign Debtholders too?
“Participating financial institutions must have significant operations in the U.S., unless the Secretary makes a determination, in consultation with the Chairman of the Federal Reserve, that broader eligibility is necessary to effectively stabilize financial markets,
I wrote this at Seattle Real Estate Professionals …
– In today’s New York Times, Peter Goodman provides an analysis. The punch line appears to be – the nation’s economy is strangling from lack of credit. “Traditionally, banks charge one another a little more than 0.2 percentage point over the rate on the safest investment, United States Treasury bills. But on Friday that spread was more than two percentage points, meaning a bank must pay an enormous premimum to persuade another to part with its money.”
Clearly, this is a problem too complex to solve, even by the excellent minds entrusted with the task. But I’m thinking that if all it takes is two points to make the world work again, what’s better – interest-free money (the current overnight rate is 2%), or taking on a trillion bucks of liability?
Update from the Federal Reserve:
“The Federal Reserve Board on Sunday approved, pending a statutory five-day antitrust waiting period, the applications of Goldman Sachs and Morgan Stanley to become bank holding companies.
To provide increased liquidity support to these firms as they transition to managing their funding within a bank holding company structure, the Federal Reserve Board authorized the Federal Reserve Bank of New York to extend credit to the U.S. broker-dealer subsidiaries of Goldman Sachs and Morgan Stanley against all types of collateral that may be pledged at the Federal Reserve’s primary credit facility for depository institutions or at the existing Primary Dealer Credit Facility (PDCF); the Federal Reserve has also made these collateral arrangements available to the broker-dealer subsidiary of Merrill Lynch. In addition, the Board also authorized the Federal Reserve Bank of New York to extend credit to the London-based broker-dealer subsidiaries of Goldman Sachs, Morgan Stanley, and Merrill Lynch against collateral that would be eligible to be pledged at the PDCF.”
http://www.federalreserve.gov/newsevents/press/bcreg/20080921a.htm
Hi Mack,
“Clearly, this is a problem too complex to solve, even by the excellent minds entrusted with the task.”
I’ve heard that Paulson and Bernanke were quoted recently as saying that they didn’t know what to do.
So….that sure gives me a lot of confidence in the bailout proposal. 🙂
Jillayne
What are the odds of changing the plan before it passes?
Also, came across this very recent and interesting paper about home prices and our current problems.
Loaded with good analysis and data.
Enjoy
http://tinyurl.com/brookings-3Q-2008
It’s always interesting to read Eleua’s thoughts:
http://clearcutbainbridge.blogspot.com/2008/09/enabling-act-of-2008-rise-of-fourth.html
Hi Roger,
Public sentiment for the bailout propsal is not good. I’ve got to think that the phone calls from taxpayers to their representatives in DC are not calling to thank Paulson for his idea.
The Democrats may try to add more to the bill.
Paulson keeps saying to the press that this is urgent and must be passed NOW without delay.
What isn’t he telling us? Why can’t we wait? I’m sure I’m not the only one who’s suspicious.
Jillayne:
And why does he have to have complete immunity from oversight of ANY kind? If we are buying a “pig in a poke”, shouldn’t we guaranteed be that someone checked to make sure there is actually a pig in there?
There are many sensible solutions available, this one is total CRAP, and it’s being forced down our throat based on panic and lies!
Sound familiar, have we been there before?
Do us a favor, and set up links to email your congressman to stop this mess.
I’m doing it first thing tomorrow.
No, the problem is not too complex to solve. They (the self-appointed Masters of the Universe), just want us to believe it is.
Solvency will not return until transparency returns.
Who the hell wants to spend hundreds of billions buying an asset whose value cannot be determined?
The bailout is NOT TRANSPARENT, and only works if WE pay too much for the unseen assets.
Anyone who thinks this will kick-start credit origination fails to understand the concept.
Banks can have billions, trillions, quadrillions…but it won’t matter unless they can lend to someone with:
-unencumbered assets to pledge as collateral
-the cashflow to pay back the debt on schedule
How is the average person going to do this if they are holding encumbered assets, a declining income stream, and a rapidly rising tax burden?
Why isn’t Goldman Sachs trying to loan money to Australian Aboriginals? Why don’t you?
They have no assets, except beat up boomerangs, and no income other than scorpions and a few crocodile skins.
Unless you find a way to unencumber the US citizen, and increase his standard of living, THERE WILL BE NO NEW DEBT ORIGINATION! GET THAT THROUGH YOUR HEAD!!!!
They want what is left of your money. That is all. This act gives them that ability, until 300 million Americans figure out that they, and 200 million firearms, outnumber 535 congressmen and 110K IRS agents.
If that is what you want, vote for this. If you want your republic to survive, vote this down. This is not a partisan issue. This is about the survival of our republic.
Update: Senator Dodd has a new proposal:
http://bloomberg.com/apps/news?pid=20601087&sid=aHeROL9EmlRg&refer=home
Here is the text:
http://www.politico.com/static/PPM41_ayo08b28.html
E:
Thanks for chiming in.
I’m a bit worried that you are starting to make sense to me!
I have seen at least 10 better proposals than this one, including doing nothing. This is ONLY going to benefit the 0.5% wealthiest in the world.
That is probably what got the DC fat-cats startled; the end of their personal gravy train, living off of the political donations of that 0.5%.
How will their world survive if they had to live off of their salaries, and whatever the average middle class donor was willing to contribute to their campaigns?
Folks, take 10 minutes and call or write your Senators and Representatives. Tell them that it is YOUR money that they are proposing giving away, and you damn well expect them to act as if they ARE representing you in this negotiation.
Even if you support it hook, line and sinker, call.
Right now, they ALL think we are too stupid and distracted about lipstick on pigs to notice that they are hauling away truckloads of gold, in the name of providing us “safety”.
Let them know that you at least understand that this is YOUR money being given away, not just the other guy’s money.
Yours. Truly.
Yours.
Well, I finished my calls.
Their phones are completely lit up. Cantwell’s VM is full, but I got a live body the 2nd time. When I suggested that I was looking for a pitchfork and a torch to bring to WA DC, she assured me that I would have plenty of company today.
Reichart’s office had a live answer, and she said the phones were crazy and NONE of the responses were favorable to the bill.
Left a VM at Murray’s office.
Took all of 7 minutes.
Here’s an easy website to access phone numbers and emails of your representatives.
Do it now.
It is your money, and your government.
http://www.usa.gov/Contact/Elected.shtml
Hi Roger,
I sent emails to both Maria Cantwell and Jay Inslee yesterday.
http://www.senate.gov
http://www.house.gov
I wonder…..if enough people express outrage, then perhaps we could delay this long enough to see what would really happen if we don’t pass this bill immediately.
Treasury Secretary Paulson was insistent that there should not be any delays.
Again, I’m on the fence on the plan, but I’m glad we live in a representative democracy, where the elected officials are supposed do what they think is right, rather than by what they think the people want. There’s probably only 5% of the population capable of understanding this, and probably only 5% of that group has the data and education they need to formulate a plan.
Unfortunately I think the idea of a representative democracy probably falls apart when you’re 50 some days from an election.
1. Could it be argued that what the people want is possibly “right?”
2. Could it be argued that the 5% capable of understanding the problem and 5% of the 5% with the data and education ARE our elected officials?
If not then doesn’t this beg the first question?
I put more weight on the masses who can grasp a basic understanding of “bailing out Wall Street.”
If the proposed plan is bad, then let’s come up with some new ideas for new plans.
By the way, Dave Ross this morning on KIRO said that we’re going to have to rename the WSJ. “Maybe we should call it the Pennsylvania Avenue Journal.” 🙂
Kary:
Are you on the fence about allowing the Secretary of the Treasury discretion to do whatever he or she deems fit, with NO oversight or repercussions for malfeasance? Including the NEXT SOT!
That is what was shamefully proposed.
And, by doing what is “right”, the question becomes, “right for who?”, in a representative democracy. Right for the people who enabled them to win elections (arguably, their political donors), or right for the people they are charged with a duty to represent?
While you may be right about the 5% of 5% capable of formulating a plan, frankly I think the public understands QUITE clearly when a robbery is exposed.
Maybe if we dropped 6 zeroes off of the equation, and substituted our neighbors John and Jane Doe as the players…
Everyone should ask of themselves, and be able to answer to their children and grandchildren;
Where were you the day your government was sold at auction? What did you try to do to try and prevent it? What was more important on that day?
Or Washington DC the financial center of the world.
Or the United States of France.
There are a number of those.
I don’t think the elected officials are smart enough to figure this out, but I’d hope they’d be listening to the people that are, rather than their constituencies, who clearly are not. If the general public is right, it would be only due to making a decision based on virtually nothing.
Roger, I’m working off the assumption that the claims made about the credit markets were acting as claimed here. There were statements on this forum to that effect last week.
Assuming that’s the case, something needs to be done, I just don’t know that the proposal is the one that makes the most sense. It’s mainly due to valuation issues and the government involvement driving up the price.
Bloomberg now reporting: “House Financial Services Committee Chairman Barney Frank said lawmakers and Treasury Secretary Henry Paulson narrowed their differences on a $700 billion plan to buy bad investments and they agreed the U.S. should get equity in the participating companies…”
http://www.bloomberg.com/apps/news?pid=20601087&sid=aZ5vL3rd6g5g
If you want to watch/listen to the senate hearings live, you can stream it here:
http://www.cnn.com/video/live/live.html?stream=stream3
The one thing I liked about the original proposal was that it helped all the financial entities, not just the poorly run ones that are in financial trouble. With the equity stake provisions it’s moving back to only helping the poorly run companies. I’m not sure that’s the best way to get the credit markets moving again.
Also, I can now see why they put the short sale restrictions on financial institutions. With the equity stake provisions, no one is going to what to own such stocks due to dilution concerns.
Kary:
Very likely, the people deemed smart enough to figure this out are the same people that were smart enough to have successfully and notably exploited the financial markets as they previously existed (Henry Paulsen, etc.), evidently to the detriment of the average American.
While I value intelligence probably more than the average guy, as I am sure you do as well, I hold other values in higher esteem.
It is those values that I suspect are lacking in the “smarter” people that we are asked to blindly trust to solve this.
Trust, but verify.
When the build-up to the Iraq War was in play, and I was trying to decide what was the right course of action, I said to myself,
“Roger, surely the President and Congress have the best information humanly possible, and if they largely agree that it is in the best interest of the American people to pre-emptively invade Iraq, depose Saddam Hussein, set up a functioning democracy, creating a reliable source of oil for the Western world, at a great cost to the US taxpayer, and with no small amount of lives lost and damaged, all for the protection of the American people and way of life, then who am I to disagree?
Roger, YOU do not have all of the information that they do. Maybe they are wisely not telling the American people something at the present time (for our own good, for the average American is NOT as smart as our elected officials, or their smart advisers), and the reason and benefits for this invasion will be made clear to us in due time.”
Well, time is up. No good reason for the invasion has appeared. Even the smart people largely agree on that now.
You see, when the President knowingly lied to the American people, for his personal gain, and that of his rich friends, and when the Congress that should have been looking out for OUR best interests failed in their duty of oversight, and the mainstream media that promised to investigate and hold governments accountable failed us as well, I came not to believe anymore in the “smart” people who did have access to the information.
When the “smart” people were required to make no sacrifice for this war in the form of higher taxes or other deprivation, and only the seemingly “not smart” people allowed their sons and daughters to put their lives in harm’s way, I stopped believing in the “smart” people anymore.
Trust, but verify.
And now, since the bailout plan was designed by the “smart” people, to allow the other “smart” people to keep all of the money they made, while doing nothing to help the “not smart” people, I stopped trusting them at all.
Still, at the very least, we should make sure they know that we actually care about what they do with our money, and that some people still believe that this is a government “Of the people, by the people, and for the people”.
Lincoln did not say it was only a government for the smart people.
Kary,
Everything I have ever assumed about you was confirmed in #14.
Eleua, you want to debate me in a place I actually post? How big of you!
Oh, wait, #22 didn’t actually say anything did it?
Re #23
This should be entertaining! 🙂
Two smart people (in this case, I mean smart, as in having carefully reasoned and articulated arguments, not smart as a euphemism for “rich”, as in #21), with entirely different worldviews.
God, if only the Presidential debates could be this good! The problem there is they will only present mildly differing worldviews (even though I suspect their worldviews are more polarized than they will let on).
Kary,
Everytime Synthetik and I show up at the “Seattle PI RE Pro” blog, it gets dumped.
When you lose (which is usually at the onset of the first exchange) you dump the table and go home.
I’ve never deleted one of your posts (or Synthetik’s that I recall), nor do I think anyone has deleted any posts in any of the threads I started. And I really think you’re doing yourself a disservice grouping yourself with Synthetik.
I’ve not seen anything you’ve said be objectionable, but Synthetik typically only does things like mention kool aid, etc. Nothing of any intellectual value.
But getting deleted is entirely dependent on what you say. And I don’t mean which position of an argument you’re on. Make a reasoned argument without being insulting or demeaning and I really doubt anything you write will be deleted. If it is, let me know, including what you wrote.
Roger–I missed 21. That’s probably a good example. When the Iraq was started, I think probably about 70% of the people were in favor of it! Immediately after 9/11 you probably could have gotten over 50% of the population to support a nuclear response. Do you really think politicians should do what’s popular at the moment?
But it also shows another important element. Doing something competently. Some very good arguments could be made that the Iraq war wasn’t well handled. Here we don’t even know who will be handling this bailout. That makes it entirely more risky (although by that please don’t assume that I’m saying Paulson gives me a lot of confidence–he doesn’t).
So, you have to both do the right thing, and do it right! And I just don’t see Joe Sixpack contributing to either element.
Re 26: I did have to delete a comment on a Christmas Giving thread I started. That very well might have been Synthetik that made the inappropriate comment in what was a thread about Christmas giving.
Kary:
#27, I grant you that point, and enjoyed it.
No, I’m not suggesting that geopolitics is best settled by a show of hands in your local bar. And no, I don’t want the economy run by a brief survey in the mall either. We do want experts handling things that require expertise.
And it was possible that the Iraq mis-adventure could have turned out better, with better management. However, wars of adventurism seldom turn out well in the long run, which was why it was sold to us as a war to protect our very lives and security.
But what if we had simply been told the truth? Even Joe Sixpack could have calculated the rough cost of going to war to protect his right to drive a Monster Truck, had he known that was the equation, and possibly would have come to a different conclusion in the cold light of morning.
Somebody needs to stand up right now, in Washington DC, and tell the truth, the whole truth, and NOTHING but the truth about our financial predictament.
I haven’t heard it yet, from anyone that represents me, and I haven’t heard it yet from the people that are entrusted with fixing it.
Because they ALL believe they are Col. Jessep, in a Few Good Men.
Jessep (Jack Nicholson): You want answers?
Kaffee (Tom Cruise): I think I’m entitled to them.
Jessep: You want answers?
Kaffee: I want the truth!
Jessep: You can’t handle the truth! Son, we live in a world that has walls. And those walls have to be guarded by men with guns. Who’s gonna do it? You? You, Lt. Weinberg? I have a greater responsibility than you can possibly fathom. You weep for Santiago and you curse the Marines. You have that luxury. You have the luxury of not knowing what I know: that Santiago’s death, while tragic, probably saved lives. And my existence, while grotesque and incomprehensible to you, saves lives…You don’t want the truth. Because deep down, in places you don’t talk about at parties, you want me on that wall. You need me on that wall.
We use words like honor, code, loyalty…we use these words as the backbone to a life spent defending something. You use ’em as a punchline. I have neither the time nor the inclination to explain myself to a man who rises and sleeps under the blanket of the very freedom I provide, then questions the manner in which I provide it! I’d rather you just said thank you and went on your way. Otherwise, I suggest you pick up a weapon and stand a post. Either way, I don’t give a damn what you think you’re entitled to!
Kaffee: Did you order the code red?
Jessep: (quietly) I did the job you sent me to do.
Kaffee: Did you order the code red?
Jessep: You’re goddamn right I did!!
To continue in my own words, I deeply respect the Col. Jesseps of the world. And I respect those Few Good Men and Women who labor at the gates to protect our nation’s financial security.
I just want them to respect us, all of us, including Joe Sixpack, and tell us the goddammed truth, and be willing to defend that truth in a court of law, should it be deemed necessary!
Roger wrote: “Somebody needs to stand up right now, in Washington DC, and tell the truth, the whole truth, and NOTHING but the truth about our financial predictament.”
I watched three Sunday morning news shows this week, and one person (probably a senator–I don’t remember who) was asked what was explained to them in a briefing about the potential consequences of doing nothing. They refused to answer, and the clear impression was they didn’t want to start a panic if people realized how bad things were.
So perhaps this is one of those situations where we can’t handle the truth! 😉
I can handle the truth.
Eleua, what would happen if we don’t approve this bailout proposal?
Kary wrote: “I watched three Sunday morning news shows this week, and one person (probably a senator–I don’t remember who) was asked what was explained to them in a briefing about the potential consequences of doing nothing. They refused to answer, and the clear impression was they didn’t want to start a panic if people realized how bad things were.”
As bad as the consequences might well be if the government did “nothing”, I firmly believe the results of this massive bail-out will be worse! The ONLY way this mess will get cleared up is when the toxic assets are allowed to sell at market prices. The bail-out simply delays when that day might come, allowing things to get progressivly in the meantime.
The more assets the government buys (at higher than market rates), the more other asset values will fall and the more they will have to buy. Just as we now have a situation where the government is the primary lender/guarantor of all mortgages in the US, this bail-out will result in the government being the ONLY purchaser of assets (i.e. because no one else will want to touch things are continually losing value).
Here are a couple articles I’ve written explaining in more detail why I think the bail-outs will lead to an even more dire outcome:
http://surkanstance.blogspot.com/2008/09/its-official-depression-just-ahead.html
http://surkanstance.blogspot.com/2008/09/hunger-that-never-ends.html
KLK,
You’re right about my approach. I like to keep things simple in general.
Don’t buy stuff you cannot afford, and don’t like about stuff so you can sell it. It’s pretty simple.
I use a similar philosophy in my investments (KISS). I tend to buy stuff when it is cheap and sell it when it becomes expensive.
Maybe if you weren’t such a braniac, you could be retired by now as well.
Jillayne, I remember a few months ago, when the Fed lowered interest rates twice in 2-3 days, Eleua was making some rather dramatic (and dire) predictions. Her predictions were so outrageous (so negative) I said something to the effect that what she was saying gave me confidence, while what the Fed was doing was scaring the hell out of me. Perhaps they both should have been scaring the hell out of me, because what she was predicting is now much closer to reality.
That said, I have to also wonder if some of the more recent Fed actions (e.g. taking over F&F, letting Lehman fail, and AIG), have scared the hell out of the rest of the financial world. Maybe they’re doing more harm than good?
Synthetik wrote: “Maybe if you weren’t such a braniac, you could be retired by now as well.”
That would be my worst nightmare! This sort of is my retirement. 😉
Oops. a typo. “Don’t LIE about stuff so you can sell it.”
That’s where the kool-aid part comes in and you just can’t help yourself. That’s why I’ve been banging on you and your realtor friends all these years. You just can’t help yourself because you actually believe it. I understand how commission sales works.
These last two or three years I’ve done my part on SB and elsewhere to attempt to spread the truth about lending and the real estate bubble. I was also a moderator/guest poster on Seattle Bubble; not sure why The Tim would have entrusted me with that duty, what with all my non intellectualism n’all.
BTW, I apologize to Eleua, who I understand is male, not female. I’m pretty sure I knew that, but the name reminds me or someone else.
What, the government taking $700 Billion doesn’t cause panic?
I dunno, I feel a little shaky when I realize my wife and 3 kids are on the hook for roughly $10,500 of that, plus interest.
They aren’t taking $700 Billion. They’re buying $700 Billion of assets, or at least what they hope is $700 Billion of assets.
If they throw in car loans and credit card debt, they’d be likely to be getting $400 Billion in assets.
@ Jillayne.
We crash. We also crash if we do approve this.
If we do not change the underlying regulatory structure of the banking system, we end up here again, again, and again. At some point, the banking system needs to operate in a manner that is stable.
The crash from the bailout is worse that the one from disregarding Paulson, IMAO.
If the banking system is as bad as I am led to believe, the crash is the least of our worries. The bailout does nothing to address this.
This bailout removes money away from the FDIC, which is about 97% undercapitalized. That is where we need the money.
If he prints raw treasury bills, the bond market crashes outright and my “20c on the dollar” prediction comes true by the end of the year. If he attempts to inhale $700B at one time from the credit market, the bond market sells off hard, and my “20c” prediction comes true early next year.
That assumes 300million people are content to pay tens of thousands in higher taxes (for each revolver Paulson gets), watch their stock portfolios crater along with their home values. This also assumes that Washington DC isn’t overrun with pitchforks, torches, and shotguns because their Congress gave trillions to Wall Street bankers, and Americans got smoldering assets and the bill.
The only thing that is positive about this comes from the absolute certainty that the Boomer generation is the bagholder for 4 generations of debt excess (that was largely of their doing).
@KLK,
Paulson has asked for a $700B revolving line of credit with no checks of any sort on how he spends it. He can buy something that has a market value of 20c on the dollar for 90c and then sell it to one of his buddies (Goldman) for a penny. He can do that with $700B, and then go back for more money and repeat. He wants a blank check for 24 months.
All day was spent talking to Congressional staffers that advise their bosses on banking matters. They see it in these terms.
No need to apologize for thinking I’m a chick. The internet is about the mind, not the plumbing.
By the way, I made a comment up at 33 (responding to Kary), but few have likely noticed it since it was held in limbo as suspected SPAM until late last night when Dustin kindly unplugged it.
You just gotta love these automated systems… This is the second time I’ve had posts quarantined. Maybe I should take a hint. 🙂
Sniglet wrote: “As bad as the consequences might well be if the government did “nothing
Eleua wrote: “Paulson has asked for a $700B revolving line of credit with no checks of any sort on how he spends it. He can buy something that has a market value of 20c on the dollar for 90c and then sell it to one of his buddies (Goldman) for a penny. He can do that with $700B, and then go back for more money and repeat. He wants a blank check for 24 months.”
I really don’t see Congress giving him that blank check. But in addition to controlling the Secretary, I think there probably need to be some controls on the members of Congress pressuring Treasury to buy the assets of certain companies.
“Why did you buy this?” should be a legitimate inquiry, but “Why aren’t you buying this?” should be a felony. Somehow I sort of doubt we’ll see that in the bill.
Read-carefully at the line items.
The total bailout is $1.8T and not $700B. The latter figure is to buy illiquid assets and debt-instruments off the books of banks, financial institutions and companies in financial trouble.
This is in addition to the $200B SIV loans, Bear Sterns bailout, Fannie and Freddie conservatorship, AIG conservatorship and the mysterious $138B pass-through credit derivatives netting settlement initiated by Bear Stearns (and financied by the Fed) with Lehman Brothers (as listed by Lehman Brothers in their bankruptcy filings last week).
I cannot believe the US citizenry is falling for this.
Mack : The punch line appears to be – the nation’s economy is strangling from lack of credit.
The nation’s crisis is not due to lack of credit, but due to too much credit and too little savings. The US has the lowest savings rate amongst developed nations.
Sound assets lead to credit creation, and not vice-versa.
Hi BombayTrader,
“I cannot believe the US citizenry is falling for this.”
I hope we don’t. MSM is reporting that consumers are mad and are contacting their elected representatives in droves.
Hi Kary,
There’s been more analysis posted today by CR and Dr. Krugman.
http://calculatedrisk.blogspot.com/
http://krugman.blogs.nytimes.com/2008/09/23/good-ideas-and-lies/
Of course for some uplifting news you can always read some Roubini.
http://www.rgemonitor.com/roubini-monitor/253713/the_unraveling_of_the_shadow_banking_system_moves_to_hedge_funds_as_schmalpha_replaces_alpha
Hi Sniglet,
You can always email me, Ardell or Dustin directly if one of your comments accidentally goes into spam. Sometimes if there’s one or more links in a comment, it will auto-spam it. We have access to the admin panel. Apologies!
Thanks Jillayne, I’ll get to it later. Just wanted to report the man on the street view as reported by NBC. The person was against the bailout because the people working in the industry have air conditioned offices! What incredible economic insight! 😀
@KLK #51
What is your point? Only eggheads with JDs are allowed any kind of valid opinion?
No, it gets back to my point about representative democracy. The politicians should do what they think is right based on what experts can tell them, not based on what the people think. The people have no understanding of even basic economic concepts, and this is a very complex issue.
Which gets to my second point–I haven’t offered a solution here. I don’t think having a degree in accounting (and a ton of credits in economics) and a degree in law give me the background to offer a solution. I’m having a hard enough time deciding whether I like the solution offered. I don’t expect Senators Cantwell and Murry to vote they way I want them to, I expect them to vote the way they think is best for the country, based on the advice of the best experts they can find.
KLK,
OK, to be fair, your post #53 is something I can deal with. Thank you.
Yes, a member of Congress has to balance the wishes of the mob with a vision of the best interest of the nation-at-large. I get that and I support that.
In this case, I would submit that the “experts” (Paulson/Bernanke) are guilty of gross malfeasance, and their opinions should be dismissed. We are faced with two options regarding Paulson/Bernanke:
They are grossly incompetant
They are continuing their pattern of lying and manipulation.
I’m down for #2.
Since they have attempted to “fix” the problem, we have lost 1/3 of the stock market and have seriously impaired (if not destroyed) the banking system of the USA.
I don’t need that kind of help.
Murray/Cantwell need a third option, which I have posted on my blog. This fixes the problem, but does not make any empty promises of our debt problems going away with a kiss from mommy or a magic wand. The Hank/Ben proposal still keeps us all in debt, but debases our currency and hikes our taxes. Their solution does not fix the problem – it papers over one of the symptoms.
Sometimes Joe-Blow gets it right. He does not want his hard earned money going to a bunch of Wall Street fatties. In this sense, he is 100% correct. Wall Street destroyed our banks, so why get them off the hook?
Fix the problem. We will rebuild what Wall Street has destroyed. We will rebuild on a foundation of healthy banks rather than on the rancid banks we now have.
If you were a doctor, and I came to you with a broken leg, would you just give me morphine and send me on my way, or would you set the leg?
It doesn’t surprise me that the government has bailed out Wall Street. I do not agree with it on one hand but I do understand why it had to be done. In my opion its a payback for campaign contributions. I still believe we have not seen the worse yet.
Thanks for reviving this thread so that we can see what we were thinking only a few short weeks ago. Personally I think the bailout plan has gotten much worse. Direct investment in banks (with strings attached) and now they’re even talking about dealing with individual mortgages so that individuals will not feel left out. The actual potential cost of this thing is skyrocketing with every change they make.